ESRB published a report on its systematic, forward-looking assessment of vulnerabilities in the residential real estate sector in the European Economic Area (also known as EEA). Following this assessment, ESRB published a set of country-specific warnings and recommendations on medium-term vulnerabilities in the residential real estate, or RRE, sector. ESRB has a mandate to issue warnings when significant systemic risks are identified and to provide recommendations for remedial action to address such risks. The warnings were sent to the competent ministers of five countries: the Czech Republic, France, Germany, Iceland, and Norway. Additionally, the recommendations were sent to the competent ministers of six countries: Belgium, Denmark, Finland, Luxembourg, the Netherlands, and Sweden. The sub-recommendations contained in each recommendation have a specific timeline for implementation, ranging from 2020 to 2022.
ESRB also published the following reports:
- The report presenting the quantitative framework developed by the ESRB Working Group on Real Estate Methodologies for the assessment of both residential real estate vulnerabilities and related macro-prudential policies across EU countries. The report provides the analytical framework for the ESRB assessment of vulnerabilities in the area of residential real estate.
- Follow-up report on the countries that received ESRB warnings in 2016 concerning medium-term vulnerabilities in their residential real estate sectors. The report reviews the evolution of the vulnerabilities since 2016 as well as the policy responses aimed at mitigating the vulnerabilities in Austria, Belgium, Denmark, Finland, Luxembourg, the Netherlands, Sweden, and the United Kingdom.
The assessment of the residential real estate sector in all EU member states, Iceland, Liechtenstein, and Norway concluded that vulnerabilities exist in these eleven countries for which warnings and recommendations have been issued by ESRB. These vulnerabilities may be a source of systemic risk to financial stability in the medium term. The assessment of vulnerabilities is based on available data and covers developments up to the end of March 2019. ESRB had issued warnings to certain countries in 2016; the recommendations were issued to those countries whose vulnerabilities are not being sufficiently addressed post the warning. Additionally, the countries that have been newly identified with vulnerabilities that are not being sufficiently addressed received the warnings.
ESRB did not find significant direct near-term risks arising from residential real estate exposures in the banking systems of the countries receiving warnings and recommendations, although second-round effects cannot be excluded in the medium term. Moreover, these countries have taken steps to ensure the resilience of their banking sectors, for example, through an increase in bank capital requirements in recent years. In most of these countries, however, medium-term vulnerabilities are generated by a combination of vulnerabilities related to household indebtedness and house price levels and dynamics. The exact vulnerabilities vary for the countries receiving the ESRB warnings and recommendations. The key vulnerabilities highlighted by ESRB assessment are of a medium-term nature and relate to the following:
- High or rising household indebtedness and the ability of households to repay their mortgage debt
- Growth of mortgage lending and the loosening of lending standards
- Valuation or price dynamics of residential real estate
- House price growth or the overvaluation of residential real estate
Regarding the remaining EU member states, ESRB has either not identified a buildup of any material vulnerabilities related to the residential real estate sector or such vulnerabilities have been identified but the current policy stance has been assessed as sufficient in addressing them. This is the case for Austria, Estonia, Ireland, Malta, Portugal, Slovakia, and the United Kingdom.
Keywords: Europe, EU, Banking, Systemic Risk, Residential Real Estate, Financial Stability, EEA, Macro-Prudential Policy, Recommendations, ESRB
Previous ArticleBDF Publishes Supporting Documents for AnaCredit Reporting
The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).
The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.
The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.
The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.
The European Banking Authority (EBA) announced that the guidelines on the reporting and disclosure of exposures subject to measures COVID-relief measures shall continue to apply until further notice.
The Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.
The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.